This week KPMG submitted its comments to the Organisation for Economic Co-operation and Development (OECD) consultation with regard to the unified approach under Pillar One. The OECD, mandated by the G20, is working through the so-called Inclusive Framework – in which 134 countries are participating – on a global consensus to create a new nexus and a set of allocation rules for taxing multinational companies. Robert van der Jagt, partner of KPMG Meijburg & Co, who contributed from the Netherlands to the KPMG submission: “It is our belief that all jurisdictions taking part in this work should commit to repeal unilateral measures in favour of implementing the global solution that is reached through the current work.”
Tax issues related to the digitalized economy - including both the base erosion and profit shifting issues addressed in Pillar Two and the more fundamental allocation issues addressed by Pillar One - have been a source of enormous political pressure around the world.
Uncoordinated unilateral measures
Previous work under the BEPS project has not relieved this political pressure, which has led to a proliferation of uncoordinated unilateral measures being considered or enacted by some members of the Inclusive Framework. These measures often appear intended to fall outside the scope of existing tax treaties, creating the risk of double or multiple taxation without a clear obligation to provide relief. While many countries considering such measures have expressed a desire to forestall further uncoordinated unilateral measures pending a global solution, such a solution appears to be needed quickly if the consensus-based international tax system is to be preserved.
Thus, to the extent that it is not possible to prevent further proliferation of uncoordinated measures and allow time for implementation of the BEPS recommendations before taking further action, it is our belief that it will be critical to pursue a solution that:
- can achieve the broadest possible consensus among members of the inclusive framework;
- is clear and easy to administer;
- preserves, to the extent possible, existing tax rules and standards, including the arm’s length standard;
- reconciles new rules with existing standards to prevent double taxation;
- includes robust mechanisms and expectations for effective dispute resolution and prevention; and
- is sustainable over time given changing business models.
A global tax solution
In addition, any solution arrived at by the Inclusive Framework must address the application of unilateral measures if it is to achieve the goal of addressing the tax challenges of the digitalized economy without creating the risk of double or multiple taxation. A peer review process should be considered to evaluate compliance with this commitment.
Our comments on the various elements of the Consultation Document reflect these guiding principles, and focus on key issues that we believe must be addressed in order to maximize the chance of reaching a global consensus solution that is clear and administrable, eliminates double taxation, promotes long term stability, and provides for effective dispute resolution. See here to view KPMG’s submission.